An individual investor with Madoff told ABC that "the only risk with Bernie Madoff was the risk that occurred -- it turned out to be a Ponzi scheme." The strategy that Madoff took, according to the statements he delivered to investors, was one in which he "collared" a stock, taking put and call positions while holding the underlying stock in the client account. If the strategy were utilized, generally speaking, if the market soared, there would be a limit on how much of the gain the investor would share. But conversely, if the market tanked, the investor would not be swimming naked at low tide, the investor's exposure would be limited.
ABCNews.com called the SEC in New York and Washington numerous times regarding earlier investigations into Madoff funds and whether or not the red flags raised by investment advisors were brought to the attention of the SEC.
A SEC spokesman responded Friday evening with this statement:
"The staff of the SEC's New York Regional Office completed two inquiries into Bernard L. Madoff Investment Securities LLC in 2005 and 2007. Staff from the Office of Compliance Inspections and Examinations completed a broker-dealer examination in 2005, finding three violations of 'best execution' rules. Staff from the Division of Enforcement in New York completed an investigation in 2007, and did not refer the matter to the Commission for enforcement action. In response to recent new evidence, the New York Regional Office recommenced its investigation of Madoff and referred the matter to the Commission for enforcement action on December 11, 2008."
The SEC had previously referred ABCNews.com to its Thursday press release in which New York Associate Director for Enforcement, Andrew Calamari said, "Our complaint alleges a stunning fraud that appears to be of epic proportions."
According to an SEC document filed in January 2008, and cited in the complaint, Madoff's firm had between 11 and 25 clients for the fiscal year ending October 2007, and managed about $17 billion in assets in 23 different accounts.
Madoff's lawyer, Dan Horwitz, a partner at Dickstein Shapiro in New York, said his client is cooperating fully with the federal investigation.
"Bernie Madoff is a long-standing leader in the financial services industry and he is cooperating fully with the government investigation into this unfortunate set of events," Horwitz said.
Bernard Madoff Investment Securities, in addition to that private client practice, is also a market maker that trades with other dealers in bonds, the S&P 500 and NASDAQ, according to Bloomberg News.
The firm was the 23rd largest market maker on NASDAQ in October, handling a daily average of about 50 million shares. The firm specialized in handling orders from online brokers in some of the largest U.S. companies, including General Electric Co. and Citigroup Inc., Bloomberg News reported.
But on Wednesday, Madoff allegedly told senior employees at his firm that his entire business was a fraud. According to the federal complaint, Madoff told those employees that he was "finished" and that "it's all one big lie." Madoff estimated "the losses from the fraud to be at least approximately $50 billion," the complaint states.